The S&L crisis involved the orderly winding-down of banks – not saving them.

The Canadian banking industry is a completely different case, and cannot accurately be compared to ours.

Stability is not the issue at hand.

I’m quite familiar with Glass-Steagall/GLBA and the history around it. I’ve also read your linked reference, and the arguments therein don’t hold water with me.

]]>By: TGGPhttp://blogs.reuters.com/felix-salmon/2010/05/01/blaming-rubin/comment-page-1/#comment-14499
Thu, 06 May 2010 02:01:39 +0000http://blogs.reuters.com/felix-salmon/?p=3666#comment-14499Your take on Paulson reminds me of the “politician’s syllogism”. Something must be done. This is something. Therefore, this must be done.

The government has within living memory bailed out a number of financial institutions. I am speaking of the Savings & Loans. This is not because any of them were extremely large, there were just a great many small failures. The Great Depression similarly featured many small banks that failed. Canada, which has long had just a few large banks, has had far fewer bank failures over its history. If anything, larger banks tend to be more stable and the U.S is unusual in how fractured its system has been (owing in large part to historical unit banking laws).

There was no “demise” of Glass-Steagall. If you read my link you’d know it wasn’t repealed. GLB only repealed the sections allowing commercial banks to be affiliated with investment banks, and the subsidiary commercial banks of Merrill Lynch, Goldman Sachs, Morgan Stanley and Lehman Brothers were more than an order of magnitude smaller than their parents. Citibank, Wachovia, Bank of America, JP Morgan Chase, and Wells Fargo were all still prohibited from “underwriting or dealing” in securities as per section 16 of Glass Steagall, but Glass Steagall had never prohibited them from “purchasing and selling” securities. Nor did GS ever stop them from securitizing loans. All this is explained in the linked piece.

]]>By: LucyHoneychurchhttp://blogs.reuters.com/felix-salmon/2010/05/01/blaming-rubin/comment-page-1/#comment-14479
Wed, 05 May 2010 19:09:15 +0000http://blogs.reuters.com/felix-salmon/?p=3666#comment-14479What I criticize him for, is for being completely ineffectual at his jobs working for both the benefit of the People of this country and the customers of Citigroup. I am not cheering Paulson, merely making a comparison between someone who is effective and someone who is not.

…although both Sandy and Hank would certainly applaud Rubin’s effectiveness, they have a different perspective than mine.

Rubin’s role was contributory. He was a prime player in this mess – though not the sole actor.

The passing of the GLBA ensured that large systemically important firms would arise. And they did. Massive systemic risk is what necessitated massive government intervention. Again, just one factor, but a huge one.

Wait a minute. You criticize Rubin for not seeing the crisis ten years out. Why are you cheering Paulson, who failed to see it coming right in front of his nose, when the notional value of derivatives was ten times larger? He did nothing until the collapse hit.

Rubin did propose to regulate deriviatives, but Brooksley Born rejected the deal because she wouldn’t control it. Whether that’s a turf war or her being afraid that whoever else was in charge wouldn’t do it right is in the eye of the beholder.

We have a government with checks and balances. Unless Rubin caused the 1994 Republican landslide and Phil Gramm’s selection as banking chair, its silly to blame him for the fact that reform was impossible outside of the possible deal with Born. You’re falling into the myth of political will.

Also, could you please give a mechanism for how the combination of banking licenses with insurance and investment banking was the fuel that ignited the catastrophe, as you say?

After all, the crisis was most severe among standalone investment houses and standalone subprime mortgage issuers who weren’t even banks to begin with. And I would imagine that a combined bank doing its own securitization would at least have some incentive to check out the facts of people’s loans.

The point is that this is a man in the top echelons of power, politically, professionally, and in terms of influence – a man whose JOB it was to know – and he did NOTHING. He was totally ineffectual.

… and when the job aint getting done, you got the wrong man in the job.

Now you can drum up all kinds of excuses for him – the President woudn’t a liked it, Congress woudn’t a liked it, ad infinitum. But, this ain’t kindie garten kids.

Just for fun, let’s make a comparison with our buddy Hank Paulson – a guy who drove the TARP legistlation through with not much more than balls, bubble gum, and a 3-page memo. Now, for good or for bad, THAT’S someone who got it DONE.

As for Gramm-Leach-Bliley having nothing to do with the crash – you must be joking.

GLBA broke down the separations between banking, securities and insurance businesses that was mandated by Glass-Steagall. It certainly wasn’t the only cause of the crisis. There were MANY causes. But it was a HUGE result of the larger deregulatory (we’ll let the ‘invisible hand’ solve all evils) wishful thinking political environment – which Rubin was a prime proponent of.

The fact that Banking Licensees (that hold an explicit government guarantee) were combined with securities and insurance firms (a la Citigroup) was the fuel that ignited the global meltdown requiring massive government financial intervention.

… and if anyone thinks Rubin was on the right side of that one – they’re wrong. The reason Rubin landed his cushy no responsibilities at the office, spend the day on the phone with my wannabe girlfriend and still get paid $15MM/yr. job at Citigroup is that he FACILITATED the demise of the strongest regulatory framework (Glass-Steagall) in securities industry history for Sandy.

Net/Net, not only will Rubin go down in history as an abject failure at his job – it’s already clear to anyone paying attention that his failings contributed greatly to both the global financial meltdown and the resulting misery of millions worldwide.

I don’t think it caused the crisis. It does create the risk of contagion spreading faster from the investment banking business to traditional banking than it otherwise would. But that could be contained by regulating shadow banks as if they were banks.

In a sense it seems to institutionalize bailouts of investment houses. Yes, Citi and BoA were able to survive because of their deposits, but we don’t want deposits to be the fallback, because if something happens to those, the FDIC and the American taxpayer will be on the hook.

On the other hand, the flexibility to do those mergers did help stave off an ever larger disaster.

That said, I was able to read about two paragraphs in to the introduction to Wallison’s post before I gave it up as not really attempting to be neutral (as you would expect from AEI).

]]>By: TGGPhttp://blogs.reuters.com/felix-salmon/2010/05/01/blaming-rubin/comment-page-1/#comment-14363
Tue, 04 May 2010 04:21:56 +0000http://blogs.reuters.com/felix-salmon/?p=3666#comment-14363Peter Wallison argues that Gramm-Leach had nothing to do with the crash. I recall Dean Baker saying that while it was a bad idea, it still wasn’t the cause. I’m not aware of any real argument showing that it did have such a causal effect. Maybe I just haven’t been reading the right papers. If anyone knows of such a link, please leave a correction at my post:
http://entitledtoanopinion.wordpress.com /2009/11/24/glass-steagall-wasnt-actual ly-repealed-and-cdss-arent-dynamite/
]]>By: Jos5319http://blogs.reuters.com/felix-salmon/2010/05/01/blaming-rubin/comment-page-1/#comment-14361
Tue, 04 May 2010 01:56:29 +0000http://blogs.reuters.com/felix-salmon/?p=3666#comment-14361Why would Larry Sumners want to regulate his personal golden cow?

“Insiding trading” should enter the lexicon with a new meaning: trading top Wall Street executives with top business school/academic heads, then trading them a post at the top rank in the Economic Advisory Committee and at the helm of the U.S. Treasury.

Ouch, I goofed. I should have quoted, “Yes, its possible that he thought that because he was captured. But it was completely reasonable to expect that it was politically impossible to pass derivatives reform. The Republicans controlled Congress. To get a bill brought up for a vote, …”

I completely missed the name “Born” in the paragraph I did quote and thought you were talking about the defense of Rubin that stated he didn’t want to attempt instituting regulations without a crisis (“absent a crisis it would be politically impossible to pass new rules” – quoted from “In Defense of Robert Rubin”), which I find to be something of a vulgarity.

Having quoted you one might think I would have actually gotten the point, but no. I leapt and now you forced me to take a look.

Sorry.

As for the neutering, however, any record would have been nice – not necessarily a “loud” one. And, frankly – perhaps too frankly, what’s the point of the organ if you can’t use it for something aside from reports that you had stern conversations with individuals in your office about the risks of something left unregulated and which helped put your corporate employer in such mortal danger?

Also, Clinton left office in 2000. the explosion happened in ’07 – ’08. Rubin could have said something without hurting Bill but, let’s be honest, how would that have looked to Citi? Finally, Gramm was not moving. If anything, if Rubin actually had convictions, he might have moved the public debate on regulation and now would look like a seer, rather then someone trying to rehab his image.

I’m not really sure what your point is for the first two paragraphs after you quoted me.

Also – making a loud record of your dissent is a great way to neuter yourself politically.

Rubin did attempt to broker a deal on derivatives with Brooksley Born, which she refused because it would have moved the public face of the action away from the CFTC. If he’d run around making a public record about the need for derivatives regulation, he’d have alienated Clinton and destroyed any chance he had of moving Gramm in the right direction.